Teaching Net Present Value Analysis: Returns-to-Assets versus Returns-to-Equity

Abstract

We surveytextbooks from agricultural economics and other subject matter areas to determine their treatments of the returns-to-assets versus returns-to-equitymethods for determining the net present value of investment projects. Textbook authors disagree about the appropriate method, often give conflicting advice as to how a given method should be applied, and do not show how the results of the two methods can be reconciled. We provide a consolidated discussion of the circumstances under which the two methods produce the same net present value.